Large-Scale Alternative Energy Projects Facing Credit Crunch

Reuters is among the first to report on the negative impacts of the banking crisis on commercial alternative energy projects. Although the cites are from a European context, commercial loan sources are drying up for alternative energy projects everywhere.

The renewable energy sector will see a 21 billion euro ($29.43 billion) shortfall in debt finance by 2020, following the credit crisis and a brake on lending, a senior banker said on Monday...The result has been "the worst liquidity crisis in recent memory", said Andrew Marsden, managing director for Europe at GE Capital, which has a $4 billion portfolio of renewable energy assets...However, Marsden added: "Money is still there for renewables, (especially) private equity

Via::Forbes, Credit crisis hurting clean energy sector - bankers Image credit::New York Times, A figure in a window at Lehman Brothers headquarters in New York on Monday.

Large scale, capital-intensive projects of any kind, especially those with long pay-back periods and/or facing difficulties in obtaining construction permits will be the first to be screened out. With materials costs growing ever higher, banks simply won't take a high risk of project delay. What does this mean for climate action?It's A Good News, Bad News StoryTake the bad news first. Tight loan markets put an ace up the sleeves of opponents to alternative energy projects. Delaying tactics can easily scare the bankers away.

Will this only be a problem for wind farms and wave gen projects? No. Developers of "clean coal" projects and nuclear plants are likely to face the same issue, and are vulnerable to delay tactics as well.

What's The Good News?Projects that scale incrementally - wind farms can be designed and developed incrementally - and which have their permits in place, or that have explicit grass roots and local and State political support for a permit can be golden.

For new projects, developers can jujitsu the forces of NIMBY. Instead of letting technical people lead the alternative energy project site screening teams all the way to the land acquisition stage, they add an intermediate step. They will learn instead to seek sites where the community openly embraces the design, where they truly want the project, and will speak up for it.

Driven by tightening capital markets, skilled developers will learn to seek partners in development with elected officials, environmentalists, and economic development councils. If one in a hundred communities approached comes back with an invitation to engage, developers have increased the odds of project success by orders of magnitude.

A Concern Over PoliticsWith elections in play, there will be a temptation for developers to contribute to political campaigns with the hope of seeing government subsidies in 2009. What do you think? Is that a necessary evil, or should the free market rein?